UK Equity Mutual Fund Alphas Make a Comeback

33 Pages Posted: 13 Jan 2016

See all articles by Irina B. Mateus

Irina B. Mateus

Aalborg University

Cesario Mateus

Aalborg University Business School

Natasa Todorovic

City University London - The Business School

Date Written: January 13, 2016


In this study we re-visit the performance of 887 active UK equity mutual funds using a new approach proposed by Angelidis, Giamouridis and Tessaromatis (2013). The authors argue that mutual funds stock selection is driven by the benchmark index, so if the benchmark generates alpha, there will be a bias in interpretation of manager’s stock picking ability. In their model, alpha of a fund is adjusted by benchmark’s alpha. By applying this method, we eliminate bias inflicted by the persistently negative alphas of FTSE 100 index in the period 1992-2013. We find that adjusted Fama-French and Carhat alphas of UK equity mutual funds are higher than those implied by the standard three and four factor models and overall positive, contrary to most of the existing literature on UK fund performance. This result is consistent across funds’ investment styles and robust to use of FTSE Small Cap as benchmark for a subsample of small cap funds.

Keywords: Fama-French, Carhart, adjusted alphas, UK equity funds performance

JEL Classification: G11, G12, G23

Suggested Citation

B. Mateus, Irina and Mateus, Cesario and Todorovic, Natasa, UK Equity Mutual Fund Alphas Make a Comeback (January 13, 2016). International Review of Financial Analysis, Forthcoming, Available at SSRN:

Irina B. Mateus

Aalborg University ( email )

Fredrik Bajers Vej 7E
Aalborg, DK-9220

Cesario Mateus (Contact Author)

Aalborg University Business School ( email )


Natasa Todorovic

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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